Reserve Bank governor Alan Bollard's arms remain resolutely folded in today's review of the official cash rate.

"It remains prudent to keep the OCR on hold at 2.5 per cent" he says.

The markets, as they dissect the language, may detect a dovish signal in his dropping the phrase "for now" from the equivalent statement six weeks ago.

After all, most of the data since will have been reassuring to an inflation-targeting central bank.


Bollard continues to expect offshore funding costs for New Zealand banks to rise over the coming year - reducing any need to raise the OCR - though his tone is more upbeat about the tenor of financial markets now than it was last month.

The exchange rate has flipped from depreciation to appreciation and is now 7 per cent higher on a trade-weighted basis than the Reserve Bank forecast for the current quarter, another disinflationary influence.

"Modest" growth is still forecast for the domestic economy, with signs of a "limited" recovery in household spending and the housing market, though the bank notes that there may be further delays to the rebuilding of Christchurch following the pre-Christmas aftershocks.

The inflation picture is also "reassuring". The December quarter's inflation data were much weaker than expected at the headline level and the measures of underlying inflation are close to the 2 per cent mid-point of the bank's target band.

Today's statement keeping the OCR on hold is explicitly linked, as it was in December, to uncertainty about a fragile global economy.

That suggests New Zealand interest rates will be driven, more than anything else, by the international news flow.

At this stage the financial market see no increase in the OCR this year.

Economists are less sanguine with the (median) consensus view seeing a 50:50 chance Bollard will start raising rates in the September quarter.